Will Gold’s Volatility Return This Summer?

Kimberly Rios, CFA, CMT, Portfolio Manager
Kimberly Rios joined Catalyst Capital Advisors as a Portfolio Manager in 2014. She is currently a Portfolio Manager of an options-based commodity fund at Catalyst Funds. She carries the Series 3 license, the Chartered Financial Analyst (CFA) Designation, the Chartered Market Technician (CMT) designation, and is a member of the National Futures Association. Ms. Rios has degrees in Economics and Finance from the University of Arizona.
3D rendering gold bars or bullions with gold price chart background.

Except for January, gold volatility has been almost non-existent in 2019.  Price action has been active, with an $80 price range this year (6% high to low).  It’s easy to forgo looking at gold when equities have been so active, but the charts are starting to show some interesting set-ups.

Let’s walk through the charts of price, volatility and seasonality from longest time frame to shortest.

1. Gold volatility is at the lowest point since the $GVZ Gold Volatility Index started in 2010.

2. The 10-year monthly seasonal chart for gold prices indicate an upward price bias during the summer months.

  1. The relationship between gold and gold volatility tends to be that when gold prices rise, volatility does as well. Observing the $GVZ gold volatility monthly seasonal chart, gold volatility also tends to rise during the summer months.

4. Regarding weekly price action, the 50-week moving average and a trendline below should both act as support near $1260. The technical indicators RSI, Slow Stochastics and CCI are all in agreement, pointing upward.

5. Last, the daily chart shows a few items. Drawing trendlines between highs and lows this year gives us a “wedge” formation. A wedge can be a bullish technical analysis pattern. The oscillators below the price chart show CCI overbought and turning down, slow stochastics overbought and flat, and then RSI fairly neutral with a reading of only 58.

In summary, gold volatility has been extremely low for quite some time. It would take gold volatility doubling to return to the “average” volatility level pre-2017. Even though gold prices have had a fairly tight range lately, in my opinion, the charts indicate an upward bias between the wedge price pattern and seasonal tendencies in price and volatility. If price action were to advance and volatility followed, the price move could be rapid. The support is not far below, near $1260. Charts like these can be guides for risk-return trade-offs and placing stops appropriately.

Disclaimer: Author holds both long and short positions in gold options.